According to the findings put forward by the comprehensive report on the functioning of the Guarantee Fund, the new provisioning mechanism has delivered the promised improvement in the budgetary process with a provisioning based on the observed net-disbursements. This, as shown by the report, has resulted in an improved budgetary process for provisioning the Fund.

The comprehensive report on the functioning of the Guarantee Fund (COM(2010) 418 final) demonstrates that the Guarantee Fund in its present setting functions well and that the new provisioning mechanism fulfilled the expectations. This analysis is underpinned by the findings of the evaluation of the Guarantee Fund by GHK Consulting and Volterra Consulting as external evaluators, which in particular confirms that the 9% target rate is appropriate in view of the risk covered by the Fund.

The purpose of the evaluation was to assess the relevance, effectiveness and efficiency of the Fund, with a particular focus on the appropriateness of the current levels of the main parameters of the Fund, notably the target rate.

According to the evaluation carried out, the report concludes that there is at present no need to change the legal base of the Fund or any of the Fund's parameters.

Main findings of the evaluation of the Guarantee Fund for external actions

• The Fund is an effective and efficient mechanism for provisioning for the risks associated with EU’s external lending actions
• The costs of operating the Fund are modest in relation to the budgetary protection and stability offered by the Fund
• The current management methods for the Fund are working effectively and are fit for purpose
• The 9% provision target rate is at an appropriate level and provides a comfortable buffer against loss. Even under an accelerated scenario (a type of default as yet not observed with EU lending), the quantitative assessment indicates that a one in twenty year loss could potentially be provided for
• The provisioning mechanism takes into account sufficiently well the risk profile of the Fund. Given the ‘unlikeliness’ of the Fund breaching either the 80 percent or 70 percent triggers, the current mechanism does allow satisfactorily for the associated missed loan payment risks

Based on these findings the evaluation recommends that the Fund should continue to cover the external lending operations of the EU, and the target rate should be maintained at 9%. It also considers that it would be prudent to increase the annual budget allocation to between 250-300 million Euro, better reflecting the expected profile of provisioning needs; and that further analysis should be carried out to determine whether the same quality of portfolio management services could be achieved by the Commission at a lower cost.

The Guarantee Fund for external actions

The Guarantee Fund for external actions was established in 1994 by the Council Regulation (EC, Euratom) No 2728/94 of 31 October 19941 in order to shield the Union budget in the event of any default by the beneficiaries of loans granted or guaranteed by the European Union.

The lending operations covered by the Fund relate to three different instruments which benefit from a guarantee from the European Union budget: guarantees to the European Investment Bank (EIB) external loans and loan guarantees, Euratom external lending and EU Macro-Financial Assistance (MFA) loans to third countries .

The Fund regulation was amended three times and is currently operating under Council Regulation (EC, Euratom) No 480/2009 of 25 May 2009 (codified version). Three reviews of the functioning of the Fund took place in 1998, 2003 and 2006. Further to the last review in 2006, a new provisioning mechanism was implemented which entered into force in 2007.